The unusual policies issued by the Fed are causing a two-fold inflation problem in the real economy. We bet many of you on the other side of the screen could already notice how prices are surging in some goods, and you haven’t seen it wrong. The sanitary outbreak reshaped our necessities, changing it according to our new reality.
Some things that we used to frequently buy are not so much of a part of our new routines as they used to, being replaced by other products that are better adapted to the moment we are living. For instance, previously, many people used to drive to work. Today, however, considering they are still employed and working from home, they don’t feel like they need to spend so much on gas. But maybe – if they got time on their hands, they wanted to buy a new bike to teach their kids how to ride and were caught in surprise when they saw a serious spike in prices.
In this connection, a recent study has shown that prices are considerably increasing for the stuff we really want to buy, while those that have been left out of the picture are facing a decline in prices, thereby, showing that inflation has already started to show significant impacts on the real economy. That is why today we are going to analyze the implications of this effect so that we can understand how it was formed and what we can expect inflation-wise over the next developments of the economic collapse. So, stay with us, and please, give this video a thumbs up, share it with your friends, and subscribe to our channel to keep updated on the most diverse economic topics that are building the historical moment we are all living. WSJ’s James Mackintosh published an article over the weekend titled “Inflation Is Already Here—For the Stuff You Actually Want to Buy”, which sharply evaluated the situation.
Mackintosh described that “if it feels like the price of everything you buy has been soaring, that’s because it has—even as central bankers everywhere worry about the danger of deflation.” The author then highlights to the “massive gap” between the everyday experience and the annual inflation rate of 1.3%, observing that “the price of the stuff we’re buying is rising much faster, while the stuff we’re no longer buying has been falling, but still counts for the figures.”
Evidently, this adds up perfectly, because, in essence, the higher the demand for a given good or service, the higher price will escalate and vice versa. The data transcribe that in this “post-health-crisis era”, where people are now working from home, the annual inflation for some products is now considerably overshooting the Fed’s targets.
Even so, many economists are confident that the prevalent price forces over the next 1-2 years will be mostly deflationary, if the face of the massive layoffs that considerably crushed wages. “In the short term the demand shock prevails, so we will have subdued prices for the next 12 to 18 months,” says Luigi Speranza, chief global economist at BNP Paribas.
That is to say, the lingering effects from the health crisis could be translated into less need for travel and tourism workers for years to come, while those who have been unemployed will lose skills. Also, the deflationary side-effects of the forthcoming macro transformations can create a surge of delinquencies and defaults across commercial properties, possibly leading to a widespread deflationary debt-destruction, as many workers will be forced to leave to find new roles.
In conclusion, if Congress doesn’t manage to find an agreement about a fifth fiscal stimulus, the price rises are likely to continue to grow at a fast pace, worrying investors and triggering warning signs for the economy. Particularly if the second wave of viral cases is followed by a third, boosting lay-offs and a recession once again, ultimately also affecting prices. So, the prospects from now on seem to include soaring prices for things Americans needs and declining prices for things they don’t. For the major institutions, this isn’t enough to raise their attention, but for us – the average Americans on Main Street – it means more financial pain ahead.

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